5. Concluding remarks
The main purpose of this paper was to assess the impact of regulation on TFP. The econometric results were based on a sample of 23 OECD countries for the period 1975–2007. A unique feature of this study was the distinction between short run and long run effects as well as the assessment of nonlinear influences of regulation. The empirical findings clearly suggest that lower product market regulation is important for long run increase of TFP. Importantly the influence of regulatory changes is reinforced in countries with already high levels of regulation. Also, the damaging effects of regulation are more intense in countries with low technology gaps. On the contrary, short run effects of regulation on productivity are not always statistically significant. This evidence is consistent with the view that the effects of lower regulation are expected with a time lag as in the period shortly after deregulation its impact might be negligible due to adjustment costs. These findings are robust across different specifications. The findings of this study clearly indicate that institutions that promote lower regulation are important for higher productivity. A key mechanism through which lower regulation increases productivity is the reallocation of resources and output towards most efficient production units. Therefore, any improvement in the conditions of conduct of competition should be considered as a policy aimed at increasing long term productivity and economic growth. The impact of regulation on productivity is an issue which remains open for further research, as regards its influence in countries with different institutional characteristics, such as bureaucracy and corruption.
